VANCOUVER -- The regulatory body that oversees British Columbia Hydro & Power Authority has raised eyebrows by rejecting a bid by the Crown-owned utility to build a $370-million energy project to serve the electricity needs of Vancouver Island.

The decision, which calls into question the future of a proposed undersea pipeline to provide natural gas for the Duke Point plant, comes after B.C. Hydro has already sunk about $100-million into the energy project.

It is expected to spark even more debate over how the province can avert looming brownouts following the recent privatization of B.C. Hydro's administrative operations.

British Columbia Utilities Commission spokesman Brian Williston said Hydro's bid to build the plant was rejected because it could not demonstrate that it was a cost- effective means of meeting the needs of customers on Vancouver Island.

However, B.C. Hydro spokeswoman Elisha Moreno said the utility respects the decision, but would not make any formal comment until it had read an 88-page document outlining the reasons for the rejection.

B.C. Hydro wholly owns the Duke Point project at Nanaimo and is an equal partner in the related natural gas pipeline project with a unit of New York Stock Exchange-listed energy marketer Williams Co. Inc.

Yesterday's decision by the B.C. Utilities Commission drew a mixed response from commentators on both sides of the political spectrum.

Vancouver-based energy critic David Austin said the decision was no surprise because the hydro plan has been what he called a "financial mutt."

A number of private parties, including pulp and paper maker Norske Canada, have already told provincial regulators that they can provide the 362-megawatts of electricity more cheaply through a mixture of energy savings and co-generation at its existing pulp mills.

"This has become the financial Iraq of electricity," said Bill Tieleman, a former strategist with the B.C. New Democratic Party.

"The costs just keep going up and up," he said.

However, Mr. Tieleman said he was shocked to hear that B.C. Hydro's plan to build the plant had been rejected.

Hydro Chairman and chief executive officer Larry Bell has close ties to B.C. Premier Gordon Campbell and donated $2,700 to the Liberal Party in 1998.

"It looks like they are going to give serious consideration to other proposals," Mr. Tieleman said.

Mr. Austin said the key question now is whether the provincial government will clear the way for a fair and open evaluation of potential alternatives to B.C. Hydro's Duke Point proposal.

"People don't want to spend time and money on a bidding process for which the conclusion is already foregone," said Mr. Austin.

The British Columbia Utilities Commission or an independent third party should oversee the bidding process, he added.